Other Stuff

One of the classes I teach in the engineering school at Stanford is E145: the Fundamentals of Technology Entrepreneurship, an introduction to building a scalable startup. While the class is open to everyone at the University, we want to teach science and engineering undergraduates how they can take a technical idea and turn it into a profitable and scalable company.

The class which was authored by Tom Byers, is offered every quarter and taught by four different professors. But thanks to Tom, we all get to teach it with a slightly emphasis.

Teaching GoalsOur goal is to teach students the key concepts of the startup process and help them understand that a startup is a search for a profitable business model. We did this with twice weekly lectures and seven case studies. Most importantly we tied the lectures to a hands-on team project. Students formed 5-person teams, came up with a business idea then got out of the building to validate their business model. (And learn how to pivot their model as reality intrudes.)

Our goal was not to teach the students to write a business plan nor were we trying to teach them how to give a pitch to VC’s.

A Startup is a Search For A Business ModelAs I’ve described in previous posts; a startup is an organization formed to search for a repeatable and scalable business model.

A business model describes how your company creates, delivers and captures value. It’s best understood as a diagram that shows all the flows between the different parts of your company. This includes how the product gets distributed to your customers and how money flows back into your company. And it shows your company’s cost structures, how each department interacts with the others and where your company can work with other companies or partners to implement your business.

We want to teach our students to think about how their “idea” for a business translated into a business model and then to see if that business model will survive first contact with customers.

In our class Ann and I offered the students a template of a business model diagram. Their job was to get out of the building and transform the boxes into real data. (I’ll show you some of their examples at the end of this post.)

Class LecturesWe had ten weeks and an hour and fifty minutes twice a week to cover the basics of a startup.

Our lectures were organized as:

Where do ideas come from?

How to decide whether an idea is a scalable business opportunity.

What is a business model?

Distribution, Demand Creation and Partnerships

Customer Discovery

First Team Presentation – What’s the Idea and How Large is the Opportunity

Regulation and Intellectual Property

Building Startup Teams

Metrics That Matter (Business Model Metrics)

Accounting Basics and Multi-stage Finance

Liquidity – the End Game

Final Team Presentation – What’s the Business Model?

Interspersed among the lectures were seven “case studies”: Chegg, IMVU, WebTV. Nanogene, Wily, Solidworks and Barbara Arenson. Each case study was a real world example of an issue an entrepreneur might encounter as they were building a company.

Final Team Project – What’s the Business Model?11 student teams of 5 were working outside of class on the Opportunity Assessment Project. Each team had to take an original idea, come up with the positioning and analyze the potential size of the opportunity, propose a Business Model, and analyze and explain each of the parts of their model.

Customer DiscoveryOnly 5 out of the 55 students had taken an entrepreneurial class before. None of the students were domain experts in their areas, and each team had to figure out how to contact potential customers and channel partners. Yet every team did figure out how to conduct extensive out of building Customer Discovery. (By design we didn’t give them too much Customer Development theory. The emphasis was on getting out of the building and testing their hypothesis.)

Here are some examples the “out of the building” work the students did.

Presenting the ProjectAs their final project, each of the 11 teams had 15 minutes to present their conclusions and then later submit a written summary. (We were equally happy if the students discovered this would not be a profitable business as we were if they found a killer idea.) The presentations were graded on:

Did they quickly summarize their idea?

Did they articulate the problem?

Did they size the opportunity of solving the problem?

Was their solution clear? (for product companies, this should include manufacturing and cost of goods)

Did they describe demand creation and assign acquisition costs?

Did they describe lifetime value of a customer?

Did they describe distribution channel and assign channel costs?

Did they get out of the building?

Did they tell us what they learned from going out of the building?

Did they adequately diagram the business model?

Did they describe the risks?

Remember the goal was not a fundable pitch deck or a full business plan with pages of spreadsheets. Rather we wanted them to start with an idea and see what it would take to build a real business (and tell us in 15 minutes).

This post and the next will have a few of the final presentations (click on the thumbnails to enlarge.)

And here was another presentation in a very different market.

Lessons Taught

Entrepreneurship is an art not a science.

It is best learned by a combination of theory and practice.

No business model survives first contact with customers

You won’t believe this until you hear customers tell you you’re wrong.

35 Responses

This is a ridiculously good post. These pitches/plans blow 90% of what I’ve seen out of the water. I shudder to think what’s going to happen to the VC industry when these ideas hit their inflection point and the process is completely demystified. (Hint: lots of Associates will be out of work.)

This constructivistic approach is one that distinguishes many great entrepreneurship courses. (Education is either behavioristic – focusing on acquiring knowledge content – or constructivistic that adds activities that change our knowledge structures.

Here, the vital added ingredient is that your activities are truly “experiential” – and guidance/coahcing from people who themselves truly, deeply get it.

“Experiential” does not mean “real world” or “hands on” but actually changes HOW learners think (us professors too). You have built in the kind of “critical developmental experiences” that change how students structure what they know (not just their knowledge content). In many ways, this is true problem-based learning.

In studying entrepreneurial learning – constructivistic approaches make ALL the difference BUT you need to have instructors/coaches/mentors who understand at a very deep level how expert entrepreneurs think.

Again, thank you for a great post that will give people like me some terrific ‘ammo’ for moving forward.

Didn’t read @steve’s comment before researching, but found your 145 course. Fascinating. Battled to try get something like this in the Dept. of business back when i was in Uni.
I would love to know if there were full versions of the “short video clip(s)” one can access? There are some amazing speakers. I remember when took a course with Ken Morse at Cambridge that MIT established a website to make the lectures available. Thanks Steve

I completely agree with your approach, especially the “Lessons Taught”.

We have been running a unique undergraduate BSc Business Enterprise programme at the University of Buckingham (UK’s only independent University) since January 2006. See http://bit.ly/6LFmpJ.

During the programme our students start and run their own business, as an integral part of their honours degree.

Within 4 months of starting the two year programme, the students pitch for up to GBP 5000 “seed-corn” capital and if successful, they then run the business for the next 18 months.

Our students, like yours, have to “get out of the building” to be successful! They soon find out what it is like to deal with potential customers, suppliers, partners and government organisations!!

The level of their degree is not subject to the success of their business, but they way they prepare their business plan, the quality of their “pitch” for finance and the way they run their business are all marked and do count towards their honours degree.

Our students also learn that they must work hard, as it is not easy to start and run a business and study to achieve an honours degree in just two years!

We also find that our young students grow up quicker compared with those who are only taking theoretical degrees in business. They are also better at reflecting on and questioning theory.

“I have come to believe that much of what my colleagues and I taught has caused real suffering, suppressed wealth creation, destabilized the world economy, and accelerated the demise of the 20th century capitalism in which the U.S. played the leading role.”

“As Harvard—along with many other business schools—now tries to understand what went wrong, it’s essential that everyone involved in business learns how to be the future. There are turning points in history when it’s time to salvage what is valuable from the old and put our energies into constructing a new model based on new rules. ”

“The old rules taught you to ask, “What is my product or service, and how can I sell it to you?” With that question, adversarialism was baked into the DNA of the buyer-seller transaction.”

The new rules ask, “Who are you? What do you need? How can I help?”

“Business is no longer just about the product. Now it’s about solutions for the individual. Economic value is hidden in consumers’ unmet needs and is released by providing people with the means to fulfill those needs.”

One thing I’d like to see emphasized in this material is serendipity and opportunism. You’ve used a war metaphor (“no plan of campaign survives first contact with the enemy” translated to markets), and that is both popular in business and makes sense given your military background.

But one dynamic in the marketplace is that sometimes your plans are ruined, but not in an adverse way, but by a bigger opportunity than you were going after initially. That’s serendipity… markets are sometimes win/win. Maybe combat situations have such serendipity too, I wouldn’t know (looking for a minor enemy leader and finding osama or hitler??)

Hmm… I do not get how the bike numbers add up. Stanford only has 6700 undergrads, 8700 grads and 1900 faculty. Plus staff. Even if 100% own a bike and 100% will buy a RFID (which I feel is inflated by about 100 times) — this still does not add to 20 000 !

This is a very interesting post. The hands on approach of teaching students the key concepts of the start up process and understanding of that start up process seems have worked.
I guess projects need to start small to understand the basic working, only then can they grow into bigger and better organizations that may some day span the globe.
There are new strategic challenges for the global firm eg: market opportunities migrating to rapidly emerging economies in the East; the long shadow of the financial crisis and the rising prominence of sovereign wealth funds; and the urgent imperative to deal with climate change and to include a larger number of stakeholders in the firm’s growth strategies.
The OWP sessions at the IMD address these challenges

[…] with the Lean model when I first read about it was when I saw that a key part of the process was to ‘get out of the building to validate the business model by talking to your customers’. Music to my ears as second only to a good process-flow is my passion for sitting down with people […]

I like this post because it shows examples of your students applying the process in areas other than software. Do you have any great examples of companies that have followed the customer development process with good results outside of software or technology?

[…] abuzz with Steve Blank's phrase that everything you need to know about your customers is "outside the building," meaning that real customer development means talking to folks face to face, seeing their […]

[…] with Steve Blank’s phrase that everything you need to know about your customers is “outside the building,” meaning that real customer development means talking to folks face to face, seeing their […]

[…] the problem and validate it accordingly. You put the Customer Development methodology in order by getting out the building and mapping out a Customer Problem Presentation. For what questions to ask the guys at Survey.io […]

[…] Steve Blank said it best “There are no facts inside the building so get the heck outside” (quote source): Marketing is Heard From Engineering was discussing how sophisticated the graphics portion of our computer should be, debating cost and time-to-market tradeoffs of arcane details such as double-buffering, 24 versus 32-bits of color, alpha channels, etc. I was pleased with myself that not only did I understand the issues, but I also had an opinion about what we should build. All of a sudden I decided that I hadn’t heard the sound of my own voice in a while so I piped up: “I think our customers will want 24-bits of double-buffered graphics.” […]

The cow estro meter could be done at lower risk using existing technology. Adapting what is already known, would fit on the competitive risks missing in the presentation.

Getting the device classified as an implant is costly, and is a time barrier, although it raises the bar on barriers to competitive entry, which investors will like, a competing technology could go another route and come in substantially lower.

My two big concerns, would be compliance time to market, under pressure from competitive threats – where existing technology (less invasive) is deployed at lower total cost – very real!

[…] While a challenge with corporate business planning is that it often is comprised with mountains of information, at an early startup there is a minimal quantifiable track record. Doing what they do best, corporations cram such information about existing products and markets to that of the startup. Unfortunately, executives and managers have founding teams develop detailed financial estimates and market analysis way too early. Secondary data may be fine for known-, but not for unknown conditions, which most often is the case of new startups. The answer lies not with your $500 Gartner or Forrester report. Rather, it is time to un-MBA and get out of the building. […]

[…] problem that they agree upon. You would put the Customer Development methodology in order by getting out the building and mapping out a Customer Problem Presentation. For what questions to ask, the guys at Survey.io […]